Decmil (ASX: DCG) was up 6.45% at the open after the smallcap engineering and construction group was awarded a $98m contract to build stage two of the Albany ring road project in WA.
Today’s announcement follows the successful progress and completion of most parts of the $55m Stage 1 of the Albany Ring Road Project the company was awarded in 2020.
The total value of the Albany Ring Road project is now $154m and is expected to be completed in late 2024.
In light of the stage two development, Decmil has restructured its debt facilities with a coupon rate reduced from 11% to 10% to help fund continued long-term order book growth.
The terms of the loans have been extended by six months to July 2025.
As part of the modified facility, the lender has agreed to Decmil’s request for the waiving of certain covenants over the next 12 months to ensure the business has optimal headroom to successfully execute on its growing and higher margin order book.
Decmil CEO Rod Heale expects modified loan terms to allow Decmil to progress its positive trajectory, as the company grows its revenue base and efficiently completes the current suite of projects.
“Our orderbook stands at $600 million, which is our strongest position since 2019, and importantly we are winning high-quality work with blue chip clients,” Heale noted.
“The modified facility will immediately improve cashflow, ensures the continuity of funding during Decmil’s growth phase and more closely aligns the lenders to the success of the business overall.”
Early June saw Heale attempt to restore investor confidence by reassuring the market the company will be more "judicious” when negotiating future contracts.
By the company’s own admission it had been too aggressive when bidding for contracts pre-covid, and this led to a series of losses and write-downs over the past two years.
A $50m writedown on a prison contract, plus a $75m interim net loss for the six months ending in December 2019, saw the share price tank from around $3.00 in late 2020 to 54 cents by the end of March 2020.
Following more recent capital raisings, write-downs, and profit warnings the company has guided to a full-year loss of $10m - $15m in fiscal 2022.
Decmil’s share price is down -80% over the last 12 months, and year-to-date has fallen from $0.32 to around $0.092 yesterday.
Consensus on Decmil is Moderate buy.
Based on Morningstar’s fair value of $0.28 the stock appears to be undervalued.
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